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Irish bank capital to cushion loan losses

Source: Reuters - Wed 21st Apr 2010

New capital levels Irish banks must meet will cushion losses on all loans and not just the riskier batches moving to a "bad bank" though funding profiles will take longer to repair, the financial regulator said.

Last month Matthew Elderfield said that Ireland's troubled banks would have to attain a level of 8.0 percent of core Tier One capital by the end of the year, necessitating lenders to raise at least 22 billion euros (19.1 billion pounds) in fresh capital between them.

Much of the fresh capital is needed to offset writedowns on loans being sold to the National Asset Management Agency (NAMA), the bad bank, at discounts of up to 60 percent.

Elderfield said Wednesday the regulator had projected loan loss forecasts for the next three years and included ad-ons in case loan impairments came in higher than forecast in order to make sure the banks commanded market confidence.

"This provides an additional source of comfort to us as prudential regulators and should similarly provide additional comfort to investors measuring up opportunities in the banking sector" Elderfield told a banking conference in Dublin.

He added that the requirements would leave Irish banks with little distance to travel when wider proposed reforms of capital and liquidity requirements - dubbed Basel III - are introduced.

Elderfield said however it would be more challenging to repair banks' funding profiles and steer them away from expensive wholesale sources.

"We have to be pragmatic and recognise that there is going to have to be quite an extensive transition" he said in answer to a question.

Elderfield has also been tasked with an overhaul of the regulatory system after loan and deposit scandals surrounding now nationalised Anglo Irish Bank. 

He said he would boost staffing levels as the team could not handle both supervisory and enforcement functions adequately and would examine raising the 5 million euro maximum fine at his disposal which is not high enough for severe breaches.

"There is a lack of transparency about what comes out" he added. "Press release(s on settling regulatory breaches) can be very opaque to the public, we need some clarity there."

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